Nokia posted its quarterly earnings report on Thursday, revealing Apple has surpassed it to become the No. 1 global seller of smartphones, and also disclosing a $600 million one-time royalty payment that likely includes its new licensing agreement with Apple.

Nokia's filings made public on Thursday reveal that the company received approximately 430 million euros, or more than $600 million U.S. dollars, in intellectual property royalties in the second quarter of 2011. This one-time payment helped the company see an increase in its Devices & Services average selling price and gross margin.

During the quarter, Nokia resolved its patent dispute with Apple, and the resulting licensing agreement included a one-time payment from the iPhone maker. The sum paid by Apple to Nokia was not disclosed, but Thursday's filings would suggest it did not exceed $600 million.

In addition to that one-time payment, Apple has also agreed to ongoing royalty payments to Nokia related to patented wireless inventions owned by the Finnish smartphone maker.

Market watchers have assumed that the terms of the secret settlement were favorable to Apple given the timing of the agreement in June. The out-of-court settlement came after an initial ruling from the U.S. International Trade Commission found that Apple did not infringe on five Nokia patents.

The $600 million in royalties were a bright spot in what was otherwise a dismal quarter for Nokia. The company posted a loss of 368 million euros for the second quarter of 2011, compared with profits of 227 million euros a year ago. Revenues were also down 7 percent to 9.3 billion.

Smartphone shipments sunk to 16.7 million units, down 34 percent year over year, a sum short of the record 20.34 million iPhones Apple sold in the same period. The data officially makes Apple larger than Nokia in terms of unit sales; Apple had already surpassed Nokia in revenue earlier this year.

Nokia has found itself in a freefall as competing devices from Apple and phones running the Google Android mobile operating system have eroded its once-dominant market share. The company has turned to a former Microsoft executive as its new CEO to right the ship.

Nokia will abandon its proprietary Symbian platform in future releases, and will instead embrace Microsoft's Windows Phone platform. The first Nokia handsets running Windows Phone 7 are expected to arrive later this year.

A thoroughly deserved fall from grace, Nokia has had over 4 years to respond to the iPhone and they wasted their chance.

They finally managed to unveil a creditable competitor in June (the N9) but it's too late, no one in their right mind will buy the N9 because it's OS will be discontinued around December when the first Microsoft powered phones launch.

When you look at the N9 and the OS that it has you just have to stand and shake your head, they obviously had the talent to produce this device and yet still decided to go for the failing Win Mobile platform instead of carving their own niche.

Innovation is dead, the decline will be gradual but steady on the path to irrelevancy, so so sad.

When you look at the N9 and the OS that it has you just have to stand and shake your head, they obviously had the talent to produce this device and yet still decided to go for the failing Win Mobile platform instead of carving their own niche.

If you think that then you have no concept of the direction computing is heading.

Individual devices are not as important as the overall computing platform they are a part of. How a device works in isolation is not as important as how it interact with other devices.

Nokia by themselves would have been a very narrow platform and doomed to fail. Joining the Windows ecosystem is a long shot, but at least they are in the race.

Actually if you look at the previous quarter's results too the assumption would be a $450mil licensing deal, not $600mil. It's only $600mil if you assume Apple was the only firm paying in that quarter - which seems improbable.

Nokia posted its quarterly earnings report on Thursday, revealing it sold a disappointing 16.7 million smartphone units in the last quarter, falling behind Apple's 20.34 million, and also disclosing a $600 million one-time royalty payment that likely includes its new licensing agreement with Apple.
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This explains why Apple's margins were not noticeably affected (in fact, iPhone margins improved). But did this show up in Apple's financial statement as a charge?

Smartphone shipments sunk to 16.7 million units, down 34 percent year over year, a sum short of the record 20.34 million iPhones Apple sold in the same period. The data officially makes Apple larger than Nokia in terms of unit sales...

If you think that then you have no concept of the direction computing is heading.

Individual devices are not as important as the overall computing platform they are a part of. How a device works in isolation is not as important as how it interact with other devices.

Nokia by themselves would have been a very narrow platform and doomed to fail. Joining the Windows ecosystem is a long shot, but at least they are in the race.

I disagree, sure the N9 is just one phone, but they could have made other handsets across multiple price points.

The software is there, they made it and so could have created the hardware around it.

There is a lot of brand loyalty in Europe with Nokia, a range of phones running Meego would have stood a chance. The ineptitude of the senior management is the problem here, they should have been able to release a device like this years ago.

This is nothing. Wait until the first Nokia cloner Microsoft Windows Phones fail just like all the other failed Microsoft Windows Phones.

Still no one can explain how magically Nokia's Microsoft Phones are going to sell when people are not buying the other cloner Windows Phones now. There is no difference in the phones; they all run the same terrible Microsoft OS.

This is nothing. Wait until the first Nokia cloner Microsoft Windows Phones fail just like all the other failed Microsoft Windows Phones.

Still no one can explain how magically Nokia's Microsoft Phones are going to sell when people are not buying the other cloner Windows Phones now. There is no difference in the phones; they all run the same terrible Microsoft OS.

MS's share in phone OS market share will increase due to this merger, no doubt about it. Unfortunately the move has already started to relegate Nokia to an also ran, the only one who benefits is Microsoft.

Given how narrow WP7 is currently as a platform I don't think that makes a particularly good explanation.

Windows Phone connects to an array of services with a breadth and depth that Nokia couldn't even begin to replicate in their wildest dreams.

Quote:

Originally Posted by saarek

I disagree, sure the N9 is just one phone, but they could have made other handsets across multiple price points.

A bunch of different handsets does not a computing platform make

Look at the version of Windows Phone Nokia will be shipping.

It hooks into the entire Windows Live environment. Email/contacts/calendars with Active Sync, auto photo/video uploads and Office document functionality which in turn utilizes desktop Office, SharePoint, Lync and the hosted version in Office 365.

And that isn't even going into the Xbox Live functionality, deep Facebook integration and ability to piggy-back off Microsoft's solid development framework.

There is absolutely no doubt that Nokia were dead without Microsoft. They could still very well be dead even with Microsoft, but like I said at least they are in the race.

To me, it remains impressive that Nokia could sell 16M + smartphones given their dramatic change in direction. Their brand must still be strong in the eyes of many consumers, who bought their phones knowing that there would be EOF to the OS. This could portend a turnaround for them once they come out with good WP products.

There is a lot of brand loyalty in Europe with Nokia, a range of phones running Meego would have stood a chance.

That brand loyalty was always to the high quality handset hardware though, nobody really had a deep love for the Nokia software experience - for the good reason that it was wretched. Only the even more wretched software from firms like Moto & S-E allowed Nokia to look good.

Once genuinely good software firms like Apple and Google entered the smartphone market, Nokia was stuffed.

Quote:

The ineptitude of the senior management is the problem here, they should have been able to release a device like this years ago.

How exactly without just jumping to Android? Nokia simply didn't have the expertise to develop a new OS that could rival iOS or Android in the time that they had available. Even Palm, which did have some game has had tremendous problems, and HP has yet to show that WebOS can compete with the big boys.

Nokia is a hardware firm in what has suddenly become a software market.

I thought the saying was, "Isn't it funny; a ship that leaks from the top... heh."

Especially if the ship was sinking in the first place...
Nokia had a fighting chance had it bought Palm and/or transitioned quickly to a newer platform.
Now, they have limited themselves to a role of OEM for Win Phone.
RIM is next.

To me, it remains impressive that Nokia could sell 16M + smartphones given their dramatic change in direction. Their brand must still be strong in the eyes of many consumers, who bought their phones knowing that there would be EOF to the OS. This could portend a turnaround for them once they come out with good WP products.

A combination of discounting and a lot of channel inertia. Even if we look at non-IFRS operating margin they still dropped by about a third down to 6.7%. Looking at those numbers, carriers will be reducing their orders of Nokia handsets and demanding lower prices.

In fact what's really interesting is that Nokia didn't just lose smartphone share, they lost considerable share in feature phones too. They lost share in practically every market - only Latin America remains a bright spot, and I think they have some residual advantage there due to a local manufacturing base.

Far from being evidence of residual brand strength, I'd say these numbers are evidence that Nokia is weaker than anybody anticipated.

Windows Phone OS is already at the top of the "anything but Apple" class and Mango will just extend that lead, and Nokia make rock solid yet beautiful and compelling devices.

So that rules out the software and hardware as a potential problem, which leaves... what? Problems with advertising? The sales channel? Simply the name "Microsoft" being attached to a phone?

Good question! I'd go with

Terrible branding. The name is cumbersome, brings to mind 'windows' and the previous poor windows mobile offerings. A consumer who hasn't seen a WP7 phone in action is going to imagine that it actually has windows!

Terrible marketing. From what I've seen of WP7 advertising it fails to capture the imagination the way that iPhone or Android marketing has. One ad suggests that WP7 is the phone that will free you from your phone - completely missing the point that people are using their phones so much because they love them. We want a phone that will be more fun to use, not one we won't use as much.

Lack of existing users. Most people moving to a smartphone for the first time will be influenced by their friends' devices or their families'. WP7 has seemed unable to even win over early adopters, and without them evangelizing it's hard to get the mass market.

Indifferent sales channel - with nobody buying, sellers have stopped trying to sell. It will take a serious marketing spend to change that.

Lack of a tablet offering - the iPad seems to be generating a huge halo effect around the iPhone. Android at least has devices to offer, even if they're not as polished. Even WebOS has a tablet. Anybody who sees a Windows-7 tablet is all the more likely to end up thinking that WP7 is windows on a phone.

Lack of an ecosystem - Apple and Google can trumpet their hundreds of thousands of apps. WP7, not so much.

Terrible branding. The name is cumbersome, brings to mind 'windows' and the previous poor windows mobile offerings. A consumer who hasn't seen a WP7 phone in action is going to imagine that it actually has windows!

Terrible marketing. From what I've seen of WP7 advertising it fails to capture the imagination the way that iPhone or Android marketing has. One ad suggests that WP7 is the phone that will free you from your phone - completely missing the point that people are using their phones so much because they love them. We want a phone that will be more fun to use, not one we won't use as much.

Lack of existing users. Most people moving to a smartphone for the first time will be influenced by their friends' devices or their families'. WP7 has seemed unable to even win over early adopters, and without them evangelizing it's hard to get the mass market.

Indifferent sales channel - with nobody buying, sellers have stopped trying to sell. It will take a serious marketing spend to change that.

Lack of a tablet offering - the iPad seems to be generating a huge halo effect around the iPhone. Android at least has devices to offer, even if they're not as polished. Even WebOS has a tablet. Anybody who sees a Windows-7 tablet is all the more likely to end up thinking that WP7 is windows on a phone.

Lack of an ecosystem - Apple and Google can trumpet their hundreds of thousands of apps. WP7, not so much.

Windows has an ecosystem components that Android wishes it has. For example, Netflix, as well as solid deals with music, movie and TV show content owners and distributors. There total apps are considerably less, but I have never found that to be a real issue. We should be asking if the number of quality apps is high enough to create a sustainable and attractive app ecosystem? I don't know the answer to that.

Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"

Windows has an ecosystem components that Android wishes it has. For example, Netflix, as well as solid deals with music, movie and TV show content owners and distributors. There total apps are considerably less, but I have never found that to be a real issue. We should be asking if the number of quality apps is high enough to create a sustainable and attractive app ecosystem? I don't know the answer to that.

Yes but now you're trying to make the kind of nuanced argument of quality over quantity that Apple tried to make for years in the desktop market-place. It didn't work then, and it's hard to imagine it working now. Consumers just aren't that discerning.

Yes but now you're trying to make the kind of nuanced argument of quality over quantity that Apple tried to make for years in the desktop market-place. It didn't work then, and it's hard to imagine it working now. Consumers just aren't that discerning.

That isn't the argument I'm making at all. I did state that MS has "quantity" and "quality" in certain areas that Android can't easily compete with, but my point was that once you get to a certain threshold of quantity the number of apps you have becomes a moot point. IOW, the ecosystem needs to be sustainable and attractive so even if you have the 10 best in class apps in the world if you only have 10 app in your ecosystem you're not going to succeed, so I'm clearly not saying it's quality over quantity.

Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"

That isn't the argument I'm making at all. I did state that MS has "quantity" and "quality" in certain areas that Android can't easily compete with, but my point was that once you get to a certain threshold of quantity the number of apps you have becomes a moot point. IOW, the ecosystem needs to be sustainable and attractive so even if you have the 10 best in class apps in the world if you only have 10 app in your ecosystem you're not going to succeed, so I'm clearly not saying it's quality over quantity.

Ok, sorry - you're not making it, but it's the case that MS would be having to make in the market for why WP7s tiny App population didn't matter. When for years they've been making the exact opposite argument for why Apple's smaller app population on the desktop did matter.

MS won't start to attract significant developer interest for WP7 until they break out of single digits in share - it's chicken and egg. Worse given the sneaking suspicion that Windows 8 will be a complete break with WP7 a lot of developers will choose to wait and see what MS' intentions are.

Ok, each time that I think that i've gotten my head around how bad it is for Nokia, I realise I missed something.

I had been looking at Nokia's non IFRS operating margin, as it seemed fairer than the headline quarterly loss given that they took a charge when sold their old Meego & Symbian teams down the river to Accenture.

But now looking at it again, they didn't exclude the one-off payment from Apple from the non-IFRS numbers, and it roughly balances the losses from restructuring - so in fact their underlying margins on smartphones & feature phones really were negative.